Good Evening to All,
I am mildly pleased with this financing. For one thing PPHM has stopped selling common at ridiculously low prices relative to other small biotech companies with lesser IP. They are about two years late in this but at least they got there.
The following occurs to me:
1. I think Geocappy and Firefox are largely on the right track.
2. A 10.5% Cumulative, convertible, preferred stock is "priced to sell"-- and in some ways has the properties of a junk bond.
3. Most preferred stock sales are pretty well spoken for in the underwriters' "minds eye" before they are offered.
4. This deal is infinitely more sophisticated as structured by Mike Hedge at K and L Gates than the last fiasco debt structured by Lytle versus "uncontrollable" events at the FDA.
5. The Preferred takes debt off the table i.e. not necessary. However, unless I missed something in the fine print, debt is still an additional option against an asset such as Avid.
6. I suspect the buyers will be pretty well assured from the "road show" that they will get their interest and principal returned (or converted at favorable terms). Therefore, the buyers will have to feel that the IP is valid and dealable, that the interest can be paid in the interim, that Avid is a valid and growing cash generator (which I have been saying for a long time).
7. There is absolutely no way that PPHM will pay 10.5% yield in a "no yield world" without getting a substantial premium on conversion to current price of common. That is absolutely the point of the preferred. Otherwise , just keep selling common and don't pay any interest. (PS don't pay attention to posters who have been bashers for years--what are you crazy.)
8. My best guesstimate is that MLV et al will be able to sell this offering with a conversion price between $3-4 per share. Of course this is not as high as I would like but it is a step in the right direction. Most importantly, if I am correct, this price is ANTI- DILUTIVE TO THE COMMON STOCK and in fact LEVERAGES THE COMMON STOCK.
This offering therefore-again if I am correct-SHOULD BE HIGHLY POSITIVE FOR THE COMMON STOCK HOLDERS AND LEAVE PPHM IN A HIGHLY FLEXIBLE FINANCIAL POSITION.
9. At the Piper Jaffray conference I suggested to mgmt. that my scientific advisors thought that PPHM could be running at least three dozen clinicals currently if they were financed properly.
Mgmts' flippant answer was that they could probably be running a hundred clinicals. There is some truth in their humor. My guess is this financing will allow PPHM to run many more clinicals than just PH III NSCLC.
10. The overall flexibility that will accrue to PPHM from this financing raises the stakes in this poker game a great deal.
11. IMO I would guess that over time the price of the common should move toward the price of the conversion on the preferred.
12. IMO this financing takes a number of negatives off the table, adds balance sheet strength and credibility to the company. IMO therefore, the value of the IP should begin to gain better recognition and the value of future scientific announcements should carry more market cap weight.
All in my opinion,
RRdog
